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Session 2003 - 04
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Lagden (Respondent) v. O'Connor (Appellant)
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OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE Lagden (Respondent) v. O'Connor (Appellant) ON THURSDAY 4 DECEMBER 2003 The Appellate Committee comprised: Lord Nicholls of Birkenhead Lord Slynn of Hadley Lord Hope of Craighead Lord Scott of Foscote Lord Walker of Gestingthorpe HOUSE OF LORDSOPINIONS OF THE LORDS OF APPEAL FOR JUDGMENTIN THE CAUSELagden (Respondent) v. O'Connor (Appellant)[2003] UKHL 64LORD NICHOLLS OF BIRKENHEAD My Lords, 1. This appeal is a sequel to the decision of the House in Dimond v Lovell [2002] 1 AC 384. It represents a further step in clarifying the obligations of motor insurers regarding the cost of hire of a replacement car while a damaged car is undergoing repair. It is part of the long continuing contest between motor insurers and credit hire companies. The issue raised is narrow, and the amount of money involved in this case is modest. But the issue is important because it raises a principle of general application affecting many people. 2. When one person's car is damaged by negligent driving on the part of another motorist and the damaged car is economically repairable, the owner of the damaged car loses the use of his vehicle while it is being repaired. In the ordinary course the damages payable by the negligent driver include, in addition to the cost of repairs, damages for loss of use of the damaged car. In the ordinary course the reasonable cost of providing the innocent motorist with a suitable replacement vehicle while his own car is off the road crystallises the amount of loss suffered by him under this head of loss. In practice it is a convenient yardstick by which to measure the damages payable to the innocent driver for temporary loss of use of his own car. 3. In cases of this type accident hire companies, or credit hire companies, as they are variously known, provide a service additional to hiring out replacement cars. Unlike the arrangements normally made by car hire companies, credit hire companies do not require the motorist to produce an acceptable debit or credit card in advance ('up front'). Nor, in practice, is the hirer required to pay the hire charges in any other way. Instead, when a motorist seeks a replacement car for the period while his own car is off the road, the company checks whether the motorist seems to have an unanswerable claim against the other driver. Having satisfied itself on this score, the company provides the car sought and then seeks to recover its charges from the negligent driver's insurers. For these services, which go beyond simple car hire, credit hire companies charge an additional fee. 4. In Dimond v Lovell [2002] 1 AC 384 the majority of the House expressed the view that a car owner cannot recover this additional fee element from the negligent motorist or his insurers. The damages recoverable for loss of use are limited to the 'spot rate' quoted by hirers other than accident hire companies. In the case of a hiring from an accident hire company the equivalent spot rate will ordinarily be the net loss after allowance has been made for the additional benefits the accident hire company has provided: see Lord Browne-Wilkinson [2002] 1 AC 384, 390, Lord Hoffmann, at p 403, and Lord Hobhouse of Woodborough, at p 407. 5. In Dimond v Lovell Mrs Dimond could have found the money needed to hire a replacement car until she was reimbursed by Mr Lovell or his insurers. The case proceeded on this basis. Understandably enough, she preferred to take advantage of the services of an accident hire firm. But what if the innocent motorist, like many people, is unable to afford the cost of hiring a replacement car from a car hire company? Unlike Mrs Dimond, he cannot find the necessary money. So, unless he can use the services of a credit hire company, he will be unable to obtain a replacement car. While his car is being repaired he will have to make do as best he can without a car of his own. If this happens, he will be without his own car and in practice will receive little or no recompense for the inconvenience involved. 6. My Lords, the law would be seriously defective if in this type of case the innocent motorist were, in practice, unable to obtain the use of a replacement car. The law does not assess damages payable to an innocent plaintiff on the basis that he is expected to perform the impossible. The common law prides itself on being sensible and reasonable. It has regard to practical realities. As Lord Reid said in Cartledge v E Jopling & Sons Ltd [1963] AC 758, 772, the common law ought never to produce a wholly unreasonable result. Here, as elsewhere, a negligent driver must take his victim as he finds him. Common fairness requires that if an innocent plaintiff cannot afford to pay car hire charges, so that left to himself he would be unable to obtain a replacement car to meet the need created by the negligent driver, then the damages payable under this head of loss should include the reasonable costs of a credit hire company. Credit hire companies provide a reasonable means whereby innocent motorists may obtain use of a replacement vehicle when otherwise they would be unable to do so. Unless the recoverable damages in such a case include the reasonable costs of a credit hire company the negligent driver's insurers will be able to shuffle away from their insured's responsibility to pay the cost of providing a replacement car. A financially well placed plaintiff will be able to hire a replacement car, and in the fullness of time obtain reimbursement from the negligent driver's insurers, but an impecunious plaintiff will not. This cannot be an acceptable result. 7. The conclusion I have stated does not mean that, if impecunious, an innocent motorist can recover damages beyond losses for which he is properly compensatable. What it means is that in measuring the loss suffered by an impecunious plaintiff by loss of use of his own car the law will recognise that, because of his lack of financial means, the timely provision of a replacement vehicle for him costs more than it does in the case of his more affluent neighbour. In the case of the impecunious plaintiff someone has to provide him with credit, by incurring the expense of providing a car without receiving immediate payment, and then incur the administrative expense involved in pursuing the defendant's insurers for payment. 8. In your Lordships' House the appellant sought to derive assistance from Liesbosch Dredger (Owners of) v Owners of SS Edison (The Liesbosch) [1933] AC 449 and Lord Wright's much discussed observations, at pp 460-461, regarding not taking into account a claimant's want of means when assessing the amount of his loss. For the reasons given by my noble and learned friends Lord Hope of Craighead and Lord Walker of Gestingthorpe these observations, despite the eminence of their source, can no longer be regarded as authoritative. They must now be regarded as overtaken by subsequent developments in the law. 9. There remains the difficult point of what is meant by 'impecunious' in the context of the present type of case. Lack of financial means is, almost always, a question of priorities. In the present context what it signifies is inability to pay car hire charges without making sacrifices the plaintiff could not reasonably be expected to make. I am fully conscious of the open-ended nature of this test. But fears that this will lead to increased litigation in small claims courts seem to me exaggerated. It is in the interests of all concerned to avoid litigation with its attendant costs and delay. Motor insurers and credit hire companies should be able to agree on standard enquiries, or some other means, which in practice can most readily give effect to this test of impecuniosity. I would dismiss this appeal. LORD SLYNN OF HADLEY My Lords, 10. I have had the advantage of reading in draft the opinion of my noble and learned friend, Lord Nicholls of Birkenhead. I wholly agree with his reasoning. 11. It was plainly foreseeable that Mr Lagden would, or might reasonably, need another car whilst his was not available. It was no less clear that he could only obtain the use of another car through the services of a credit hire company since he could not hire a car at the spot rate either at all or without taking steps which he could not reasonably be expected to take in the light of his financial position. The latter consideration distinguishes this case from Dimond v Lovell [2002] 1 AC 384. Moreover I do not consider that deductions have to be made for related benefits which resulted from his having to go to the credit hire company. 12. In Alcoa Minerals of Jamaica Inc v Broderick [2002] 1 AC 371, the Judicial Committee of the Privy Council found it possible to distinguish the case from Liesbosch Dredger (Owners of) v Owners of SS Edison (The Liesbosch) [1933] AC 449 and accordingly thought it right to leave for consideration by your Lordships' House the question as to whether Liesbosch is still good law. In the light inter alia of the criticism and qualifications of that decision to which I refer in the Board's judgment, it seems to me with great respect that your Lordships should now say that the observations that a claimant's lack of means should not be taken into account when assessing his loss should no longer be followed. 13. I would accordingly dismiss the appeal. LORD HOPE OF CRAIGHEAD My Lords, 14. This is an appeal against the decision of the Court of Appeal (Aldous, Tuckey and Jonathan Parker LJJ) in Burdis v Livsey [2002] EWCA Civ 510, [2003] QB 36 in which judgment was given in a number of test cases concerning the provision by credit hire companies of car hire and repair services to the innocent victims of road accidents. As the Court of Appeal explained at the outset of its judgment, this was the third round of a contest between the motor insurance market and the credit hire companies: [2003] QB 36, 55, para 1. It is to be hoped that this appeal will be the last and final act in that long-running contest. 15. Four of the cases with which the Court of Appeal was concerned related to a credit hire scheme provided by the Helphire group. Those cases were heard by Judge Charles Harris QC sitting at Oxford County Court: Clark v Ardington [2002] Lloyds Rep IR 138. There was a fifth case which raised a different issue involving another credit hire company called Accident Assistance. It had been heard by Gray J in an appeal from Judge Hewitt sitting at Doncaster County Court: Burdis v Livsey [2001] 1 WLR 1751. Leave to appeal to your Lordships' House was given in only one of the cases which were dealt with by the Court of Appeal. This was the case of Lagden v O'Connor, which was one of the four cases decided in the Oxford County Court by Judge Harris. 16. Mr Lagden's case raises an issue which is of concern to those innocent motorists who wish to hire a car while their own car is being repaired but, for economic or financial reasons, have no choice but to use the services of a credit hire company. It is of concern too to the motor insurance industry, as the effect of the services which the credit hire companies provide has been to increase substantially the cost of claims which must be met by insurers on behalf of the motorists who were responsible for these accidents. It arises from the decision in Dimond v Lovell [2002] 1 AC 384 that only the spot hire rate of hiring an alternative vehicle is recoverable, and not the higher rates charged by credit hire companies. The question is whether that decision applies to a claimant who, due to lack of funds or for any other reason which is reasonably foreseeable, has no alternative but to use the services of a credit hire company. The facts 17. On 29 November 1999 Mr Lagden's 10 year old Ford Granada sustained damage while it was parked and unoccupied. The damage was caused by the negligence of Ms O'Connor, who had driven her Mitsubishi Shogun into collision with Mr Lagden's vehicle. Mr Lagden took his car for repair to a nearby coach works. But he was unemployed and in poor health. He had very little money, so he could not afford to pay for the hire of a car while his own car was off the road. While he was in the garage he saw a poster by Helphire Group Plc ("Helphire") inviting custom for its services. He rang Helphire from the garage with a view to taking advantage of what they had on offer. 18. On 6 December 1999 Mr Lagden signed an agreement with Helphire UK Ltd, one of the subsidiaries of Helphire, to hire a Ford Mondeo car from them while his own car was being repaired. On the same day he signed a supplementary credit hire agreement which provided for Helphire UK Ltd to extend a credit facility to him for the hire charges for a period of 26 weeks. He also entered into an insurance policy with Angel Assistance, another subsidiary of Helphire. The purpose of the policy was to provide for the payment by Mr Lagden of the costs incurred by Helphire if they had not been recovered from Ms O'Connor by the end of the 26 week period. 19. The total cost of the Helphire scheme was £659.76. This cost included certain sums which, in the light of the decision in Dimond v Lovell [2002] 1 AC 384, would not normally have been recoverable. In the case of the other three cases involving the Helphire scheme Judge Harris held that only the spot hire rate of hiring an alternative vehicle was recoverable. But he held that the full reasonable costs of the Helphire scheme were recoverable in Mr Lagden's case. He gave the following reasons for his decision [2002] Lloyd's Rep IR 138, 164, para 142:
20. The Court of Appeal agreed with the decision of Judge Harris: [2003] QB 36, 83, para 127:
Is the decision in this case foreclosed by Dimond v Lovell? 21. The main issue that had to be resolved in Dimond v Lovell [2002] 1 AC 384 was whether the form of agreement which had been used in that case satisfied the requirements of a regulated consumer credit agreement for the purposes of the Consumer Credit Act 1974. For reasons that it is not necessary to explain for the purposes of this case where the same difficulty does not arise, the agreement was held to be unenforceable. But one of the points that was argued was whether, even if the claim had been sound, the damages recoverable ought to be limited to the spot hire rate quoted by hirers other than credit hire companies. 22. The leading speech was delivered by Lord Hoffmann. He accepted the judge's finding that Mrs Dimond acted reasonably in going to the credit hire company (referred to in that case as an accident hire company - the two expressions are interchangeable) and availing herself of its services. But he said that this did not necessarily mean that she could recover the full amount charged by the company as, by virtue of her contract, she had obtained not only the use of the car but additional benefits as well. English law did not regard the need for any of these additional services as compensatable loss, but the effect of the judge's award was that Mrs Dimond had obtained compensation for them indirectly because they were offered as part of a package by the company. There was something wrong with that conclusion. He referred to the rule that requires additional benefits obtained as a result of taking reasonable steps to mitigate loss to be brought into account in the calculation of damages which was applied in British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673. The hiring contract did not distinguish between what was attributable simply to the hire of the car and what was attributable to the other benefits, but it seemed to him that prima facie the value of these benefits was represented by the difference between what she was willing to pay the accident hire company and what she would be willing to pay an ordinary car hire company for the use of a car. As he put, at pp 402H-403B:
23. Lord Browne-Wilkinson said, at p 390B, that he agreed with Lord Hoffmann that, if the claim for damages for the loss of use of the car had been sound, the damages recoverable would have been limited to the spot hire rate. Lord Hobhouse of Woodborough was of the same view: pp 406-407. He agreed that it was reasonable for Mrs Dimond to pay the additional sum in order to obtain the benefits under the scheme, but this did not mean that she could claim the whole cost as the cost of mitigating her loss of use of the car. The cost of that was a lesser sum than that which she had expended on the hire of a substitute, on the evidence. The remainder was attributable to other matters and should not be included in the cost of mitigation. He said that this was the preferred way of looking at the problem. But there were other ways which led to the same conclusion, one of which was the distinction which was discussed in the British Westinghouse case between what was and was not collateral. 24. My noble and learned friend, Lord Nicholls of Birkenhead disagreed with the opinion of the majority on this point. At p 391A he said that it took too narrow a view of the position in which the no-fault driver found himself. He pointed out that in practice the existence of liability on the part of the other motorist did not yield money in time to be of use to him, and that the additional services provided by accident care hire companies bridged that gap. He said that the law of the measure of damages should reflect the practicalities of the situation in which a wronged person found himself, otherwise it would mean that the law's response to a wrong was a right to damages which would in practice often be illusory. Lord Saville of Newdigate said, at p 403B-C, that he preferred to express no view on the question of the principles by which damages should have been calculated had the agreement been enforceable. 25. For the appellants in this case it was submitted that the principles which were discussed in Dimond v Lovell were of general application and were not limited to claimants who are not impecunious. As Mr Flaux QC for the appellant put it at the outset of his argument, the opinion of the majority in that case provided both the starting and the finishing point for his argument. He submitted that the respondent's approach to the issue was wrong in principle. But it was common ground that the question of the impecunious motorist was not directly in issue in that case. There was no suggestion that Mrs Dimond would not have been able to afford the spot hire cost of hiring a substitute for the car which she was driving home from work when it was run into behind by the car which was being driven by Mr Lovell. It was on the advice given to her husband by his insurance brokers that she hired a replacement vehicle while her car was in the garage for eight days undergoing repair from the accident car hire company. 26. The fact that the position of the impecunious motorist was not directly in issue in that case does not, of course, in itself mean that that we are at liberty to depart from the reasoning of the majority. I agree with Mr Flaux that the opinion which they expressed about the proper approach to the issue of damages provides the starting point for an examination of the issue that has been raised in this case. Whether it provides the finishing point too, as he submitted, is another matter. That is the question which we have to decide. The answer to it raises issues of law and of policy.
The law
27. Mr Lagden's claim was, in essence, a claim for the loss of use of his car while it was in the garage undergoing the repairs which needed to be done as result of the accident. There was no evidence that he would have suffered financial loss as a result of being unable to use his car during this period. But inconvenience is another form of loss for which, in principle, damages are recoverable. So it was open to him, as it is to any other motorist, to avoid or mitigate that loss by hiring another vehicle while his own car was unavailable to him. The expense of doing so will then become the measure of the loss which he has sustained under this head of his claim. It will be substituted for his claim for loss of use by way of general damages. But the principle is that he must take reasonable steps to mitigate his loss. The injured party cannot claim reimbursement for expenditure by way of mitigation that is unreasonable. So the motorist cannot claim for the cost of hiring another vehicle if he had no reason to use a car while his own car was being repaired - if, for example, he was in hospital during the relevant period or out of the country on a package holiday. If it is reasonable for him to hire a substitute, he must minimise his loss by spending no more on the hire than he needs to do in order to obtain a substitute vehicle. If the defendant can show that the cost that was incurred was more than was reasonable - if, for example, a larger or more powerful car was hired although vehicles equivalent to the damaged car were reasonably available at less cost - the amount expended on the hire must be reduced to the amount that would have been needed to hire the equivalent. 28. There is however another principle, as was made clear in Dimond v Lovell [2002 ] 1 AC 384, that must be given effect to in the calculation of the amount of the damages. This is the principle that requires additional benefits which are obtained as a result of taking reasonable steps to mitigate loss to be brought into account when the damages are being calculated. The question which has been raised in this case is whether this principle is subject to modification where, if he is to minimise his loss, the claimant has no choice but to accept those additional benefits. 29. As Lord Hoffmann said, at p 402A, the leading case on this subject is British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673. In that case the turbines which were purchased in place of the defective turbines were more efficient than the defective turbines supplied by British Westinghouse, even if those turbines had been in accordance with the specification in their contract with the railway company. In the result the railway company obtained benefits over and above their contractual entitlement. That was their choice, and it was a reasonable and prudent choice to make in the circumstances. But it was held that it was nevertheless necessary to balance loss against gain when the amount of the damages was being calculated. 30. So far so good. But what if the injured party has no choice? What if the only way that is open to him to minimise his loss is by expending money which results in an incidental and additional benefit which he did not seek but the value of which can nevertheless be identified? Does the law require gain to be balanced against loss in these circumstances? If it does, he will be unable to recover all the money that he had to spend in mitigation. So he will be at risk of being worse off than he was before the accident. That would be contrary to the elementary rule that the purpose of an award of damages is to place the injured party in the same position as he was before the accident as nearly as possible. |
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